He was hired as CEO in 2012 after a bitter proxy fight led by activist investor Bill Ackman's hedge fund, Pershing Square Capital Management.
Ackman picked the former chief executive at Canadian National Railway to turn around Canadian Pacific, which had been under performing.
"When Hunter was brought in to lead the transformational change of this iconic company, the agreement was for four years, plus an option for an additional year," CP Rail chairman Gary Colter said in a statement.
"In seeing CP's rapid turnaround under Hunter's leadership, the board was unanimous in wanting him to stay on until 2017 and we are extremely pleased he has accepted."
CP Rail shares have more than doubled since Harrison was officially hired in June 2012.
Since joining the railway, the 69-year-old Harrison has made wide-ranging changes at CP Rail, which has seen improved financial results.
However, Harrison said there is still work to be done.
"Even though CP has experienced phenomenal success in a short period of time, there remains a lot to accomplish over the next three years to grow this company even further with our customers and shareholders," he said.
Harrison hired former CN executive Keith Creel last year to be his second-in-command as president and chief operating officer.
Creel has been seen as Harrison's likely successor when he retires.Suggest a correction